STRUCTURING TRANSACTIONS IN THE DUTCH CARIBBEAN, THE SKY IS THE LIMIT
Example: Parallel debt structures under Dutch Caribbean law
In a parallel debt structure, a company (the borrower) acknowledges a debt to an appointed agent by promising to pay the agent an amount equal to the sum of the borrower’s obligations under the (syndicated) loan agreement with the lenders. Thus an independent, parallel debt is created between the borrower and the agent for which it is (further) agreed that this debt (not only becomes due and payable but also) will be considered paid and discharged at the same time and to the same extent as the underlying loans so that (of course) the borrower cannot be forced to pay the same debt twice. The parallel debt, for which the borrower grants the agent security, is incorporated in the credit agreement. The role of the agent is to hold security for the loan on trust for the lenders, the beneficiaries.
In (international) legal literature some authors have expressed doubts with respect to the legal validity of arrangements such as these, based for instance on the view that a contract should have a causa propria (proper cause) in order to be valid. This means that any party assuming a contractual obligation must have some purpose or interest in doing so. These authors doubt if according to this legal concept the acknowledgement of parallel debt is legally sound.
Although as of yet no case law is available regarding parallel debt structures, it is generally assumed that, unlike some other (civil law) jurisdictions, such (contractual) arrangements are legally valid under Dutch Caribbean law. This offers several possibilities and advantages. When parties opt for such an arrangement under Dutch Caribbean law, there is, for instance, no need to re-register security upon the transfer of loan participation. In some other jurisdictions parallel debt arrangements are not recognized and any loan transfer in these jurisdictions is likely to require re-registration of the mortgage or other security in the name of the new lender(s), requiring the payment of further registration costs and notarial fees.
Dutch Caribbean Law is very flexible with respect to structuring transactions and provides for many (statutory and contractual) options and arrangements.
Karel Frielink / Ursus van Bemmelen
Dutch Antilles Attorneys / Lawyers
.
